Trade Example – EUR/USD

Filed under: Learn Forex Trading |

I am currently testing inside bar setups on the forex testing software Forex Tester (www.forextester.com), and I have another example of how to manage an inside bar trade on the EUR/USD forex currency pair (the pair for the euro and the United States dollar), which dates back to 2002.

 

Figure 1.

Figure 1.

If you look at Figure 1, you will see the daily chart for the EUR/USD pair in the summer of 2002. What you can see here is that price had been in a bull trend, with the 8-day exponential moving average clearly crossed above the 21-day exponential moving average, and price visibly moving up. Thus, when price formed a nice inside bar setup, I put an order in to go long in line with this trend, with a stop loss placed just a few pips below the low of the move, and no target set at all – aiming to ‘manage’ the trade. This order was subsequently filled, and price did indeed start to move up with three bullish candles in a row. However, the third of these bullish candles did give some cause for concern, as it was a pin bar with a long upper shadow.

 

Figure 2.

Figure 2.

As a result of this pin bar, at this point, I moved my stop loss up to just a few pips below the low of this pin bar; and this stop loss was subsequently hit in the next session for around a 1.37% rise on the bank (risking 1% on the trade), which is a risk-reward of 1:1.37. Figure 2 shows that this was the correct decision, and that the market did indeed fall away after this pin bar. This shows the effectiveness of using price action to inform your trading decisions, and in moving up stop losses; and by trading inside bars in this way we can take significant bites out of trends as they progress.

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